The purpose of this work is to compare the performance of urban water utilities in the Mexican states of Sonora and Baja California and discuss the likely variables that explain the differences. These two states share similar geographic and demographic characteristics. Both are border states, have a semiarid climate, and their populations share the same culture and behaviors. However, judging by their indicators, the performance of water utilities in Baja California is better than in Sonora. This study explores the likely causes and examines the different institutional rules that might explain the differing performances: the government agency responsible for service, the duration in office of utility directors, service rates, billing and collection, as well as the alternation of political parties in local government and the political affiliation of the governments in charge of service. The study concludes that institutions matter, and institutional rules have made the difference in the performance of water utilities in these two Mexican states.